Major U.S.-listed exchange-traded funds (ETFs) tracking Chinese equities experienced significant inflows in May, rebounding from a sharp sell-off in April. The shift in sentiment comes after a temporary easing of U.S.-China trade tensions, which restored some investor confidence in Chinese assets.
$401.7 Million Inflows in May
As of May 15, global investors had poured a combined $401.7 million into four key U.S.-listed China ETFs:
iShares MSCI China ETF
iShares China Large Cap ETF
KraneShares CSI China Internet ETF (KWEB)
Xtrackers Harvest CSI 300 China A-Share ETF
This surge marks a turnaround after April’s steep $3.8 billion in outflows, the second-largest on record, according to LSEG Lipper data. The only month with greater outflows was November 2024, when investors pulled $4.4 billion from similar funds.
Institutional Exposure Still High
Despite recent volatility, U.S. institutional investors maintain considerable exposure to Chinese stocks. According to Goldman Sachs, U.S.-based institutions currently hold about $250 billion in U.S.-listed Chinese equities.
Investor Confidence Being Closely Watched
Market analysts and fund managers are watching these inflow patterns closely, especially in light of geopolitical tensions. Concerns mounted in April after U.S. President Donald Trump raised tariffs on Chinese imports to 145%. Around the same time, U.S. Treasury Secretary Scott Bessant suggested that delisting Chinese companies from U.S. exchanges could become part of future trade negotiations.
Such measures would mark a dramatic escalation in financial decoupling between the world’s two largest economies, making recent investor behavior a key signal of market expectations.
Analysts Weigh In
Jason Lui, Head of Equity and Derivatives Strategy for Asia Pacific at BNP Paribas, said:
“The selling pressure in April was mainly due to trade tensions… Sentiment has picked up in May.”
Meanwhile, Xiaolin Chen, Head of International Business at KraneShares, which manages the $7 billion KWEB ETF, noted:
“Most of the outflows in April came from hedge funds and carry strategies. We find that most institutions are still investing in our funds.”
Outlook: Uncertainty Remains, but Risk Appetite Rebounds
While investor appetite appears to be recovering, the geopolitical landscape remains fragile. Continued interest in China ETFs reflects cautious optimism but also highlights the underlying risks of a deeper financial separation between the U.S. and China.
For now, fund flows indicate a tentative return of confidence — one that could be quickly reversed if trade talks stall or new sanctions emerge.
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